Australian Consumer Law and small business
What small businesses should know about consumer guarantees
What are consumer guarantees?
Consumer guarantees come from the Australian Consumer Law (ACL) within Schedule 2 of the Competition and Consumer Act 2010, which provides that products must be of acceptable quality and do all of the things someone would normally expect them to do.
Consumer guarantees ensure products are of an acceptable quality, match their description, are fit for purpose, and satisfy any express warranties. Similarly, they also ensure services supplied by businesses are provided with due care and skill, are provided within a reasonable time if no specific time is set and are fit for a specified purpose.
Consumer guarantees also provide a framework for resolving product failures, including by determining when a consumer has a right to a refund and when a supplier can instead choose to replace or repair. These guarantees are automatic regardless of any other warranties a business may sell or provide.
For further information on what product and service guarantees entail, visit NSW Fair Trading - Consumer Guarantees.
How long do consumer guarantees apply?
There is no standard or set timeframe for which consumer guarantees apply. The period of time under which a consumer can seek a remedy (e.g., refund or replacement) under consumer guarantees depends on multiple factors, including:
- The type of product
- How the product is likely to be used by consumers
- The length of time the product would reasonably be used for
- The amount of use the product could reasonably be expected to tolerate before a noticeable failure occurs
- The amount of time passed since the consumer purchased the product.
It is important for businesses to note that consumer guarantees may also apply even once the manufacturer's warranty period has lapsed.
Is there a difference between a warranty and a consumer guarantee?
Yes. Your business may make a voluntary promise or commitment to consumers when they purchase products or services which may include warranties about a product's quality, warranties against defects or extended warranties. It is important to note that warranties may be made verbally or in writing.
Consumer guarantees, on the other hand, are an automatic right given to consumers when buying a product or service. However, when a consumer buys the product/service, the warranty also becomes a right and operates in addition to a consumer guarantee.
You cannot pressure consumers to purchase an extended warranty, nor can you mislead consumers into paying for rights in an extended warranty that are already automatically afforded to them under consumer guarantees. The Australian Competition & Consumer Commission (ACCC) has published the mandatory text required for businesses to provide in written format in relation to warranties against defects as per regulation 90 of the Competition and Consumer Regulations 2010. The mandatory text for the supply of goods is:
“Our goods come with guarantees that cannot be excluded under the Australian Consumer Law.
You are entitled to a replacement or refund for a major failure and compensation for any other reasonably foreseeable loss or damage.
You are also entitled to have the goods repaired or replaced if the goods fail to be of acceptable quality and the failure does not amount to a major failure.”
For further information on warranties including examples of what may constitute a warranty, visit ACCC - Warranties.
Can my small businesses be classed as a consumer?
Your business may be able to access certain rights under the ACL if you meet the definition of a consumer when purchasing goods or services. Your business may be considered a consumer when you buy goods or services for your business which are:
- under $100,000, or
- over $100,000 and normally bought for personal, domestic or household use or consumption, or
- vehicles and trailers used mainly to transport goods on public roads.
However, these consumer rights do not apply if goods are purchased to be resold or to be transformed into a product that is sold, whatever the value.
Some requirements of the ACL apply more broadly whether a consumer is involved or not. For example, misleading or deceptive conduct is prohibited in trade or commerce.
What type of sales practices are not permitted?
There are some sales practices that are entirely unlawful, such as utilising a pyramid scheme structure, or using harassment and coercion.
Additionally, there are other sales practices that if not conducted appropriately or in accordance with requirements, may be deemed unlawful. These include:
- Unsolicited supplies
- Unsolicited consumer agreements
- Pricing
- Referral selling
Unsolicited supplies:
If your business were to send products to somebody who has not requested or purchased them and subsequently demand payment, this would constitute unsolicited supplies. Other instances may involve sending a bill to a business for an advertisement of their services when the business did not actually authorise the publication. It is also unlawful to send unsolicited credit cards or debit cards. As mentioned above, there are requirements that must be met to ensure you do not engage in unlawful practices:
You must not issue an invoice with an amount to be paid for unsolicited goods or services, unless:
- You reasonably believe that you have a right to be paid; or
- The invoice contains the warning required by law: "This is not a bill. You are not required to pay any money". This warning must be the most prominent text in the document.
Therefore, if there is no expectation of payment you are able to supply unsolicited goods or services, such as sending free product samples.
Unsolicited consumer agreements:
Unsolicited consumer agreements may occur when salespeople make unsolicited contact with consumers in order to sell them goods or services. In these instances, you must comply with:
- Limited hours for contact with consumers
- Disclosure requirements when making an agreement
- Criteria for the sales agreement, including that it must be in writing
- Restrictions on supplying services, supplying goods above a certain value, and on requesting payment during the cooling-off period.
In situations where charities are requesting donations, or sales are being made at kiosks and stalls, there are different requirements, as these situations do not always constitute unsolicited consumer agreements.
Pricing:
Some pricing practices may be unlawful if certain requirements aren’t observed. This includes multiple pricing and component pricing.
Multiple pricing – if displaying multiple prices for the one product, you must either sell the goods for the lowest displayed price or withdraw the goods from sale until the price is corrected.
Component pricing – you must not promote or advise of a price that is only part of the cost, unless also prominently advertising the total single price.
Referral Selling:
It is unlawful for you to persuade a consumer to buy goods or services by promising certain benefits, rebates, or commission for their assistance in the supply of goods or services to other consumers, if the benefit is reliant on subsequent sales.
For example, you operate a gym, and an individual has requested membership. You offered the individual a discount on their membership each month if they provide the name of five friends, but they will only receive this discount if the five friends also sign up for membership with your gym.
It is not referral selling if you offer a gift voucher to consumers who provide the names of friends or family who may be interested in their product, so long as the gift voucher is not only provided if one of the friends or family members makes a purchase. Therefore, using the above example, if the individual received the discount purely for providing the names and the discount was not reliant on the five friends becoming members of the gym, this would not be unlawful.
For further information and guidance on sales practices, visit Sales Practices - A Guide for Businesses and Legal Practitioners.
What are my disclosure obligations when communicating with consumers?
From 1 July 2020, new disclosure obligations were introduced requiring businesses to disclose certain terms or conditions of contracts to consumers. These obligations involve businesses disclosing terms or conditions of contracts that substantially prejudice the customer. Prior to supplying goods or services, you must take reasonable steps to make your customers aware of the terms or conditions and their effect that may substantially prejudice the interests of consumers. This includes the following terms as a minimum, which:
- Limit your liability
- Provide that the customer is liable for damage to delivered goods
- Permit you to provide data about or provided by the customer, to a third party in a form that may enable the consumer to be identifiable by the third party
- Require the consumer to pay an exit fee, balloon payment, or any other similar payment.
There are no exemptions from this disclosure requirement.
For further information regarding your disclosure obligations, visit NSW Fair Trading - New disclosure obligations for NSW businesses.
What remedies are available and when do I need to provide a remedy to a consumer?
You must provide a remedy to a consumer if your products or services:
- Are faulty - including if this only became apparent once the consumer used the product
- Do not match the description, sample, or demo model
- Does not do what the salesperson said it would.
The remedy you must provide to the consumer will also depend on whether the issue is major or minor, see the Consumer Guarantees - A Guide for Businesses and Legal Practitioners for further guidance on this.
If your products or services fail to meet any of the consumer guarantees, your consumers have a right to a remedy which may include one or more of the following depending on the circumstances:
- a repair, replacement, or refund
- cancel a service
- reimbursement for damage or loss.
Generally, consumers have a right to a refund if a failure is ‘major’, whereas a supplier can choose the most appropriate remedy (such as repair or replacement) if the failure is ‘minor’. See the ACCC’s website - Repair, replace, refund, cancel for guidance on the concepts of a ‘minor’ or ‘major’ failure.
Can I display a 'no refunds' sign?
Displaying signs stating things such as 'no refunds', 'no refund on sale items', 'no refund after seven days', and 'exchange or credit note only for return of sale items' may breach the ACL. These signs imply that consumers will not receive an appropriate remedy even if there is a failure to meet a consumer guarantee. The ACCC has published a 'Refunds and Returns' poster that businesses may wish to use that aligns with the ACL.
What about the manufacturer? Are they liable?
Instances may also arise where products or services do not meet consumer guarantees due to issues with the manufacturer. Businesses have a right to have their costs of providing a solution to a consumer repaid by a manufacturer, where the problem is the manufacturer's fault. Section 274 of the ACL outlines the indemnification of suppliers by manufacturers.
If a consumer raises a problem with a product, you cannot refuse to assist them and send them directly to the manufacturer or importer for a remedy, even where the fault was caused by the manufacturer.
Where a problem is caused by the manufacturer, if you provide some form of compensation to the consumer, the manufacturer must reimburse you for these costs, including costs of parts and labour involved in providing the remedy. The manufacturer is entitled to assess the product if there is a problem or fault.
If you have a dispute with a manufacturer regarding the reimbursement of these costs, you can take legal action. We recommend seeking legal advice about this.
What if the manufacturer is overseas?
The term 'manufacturer' has a broad definition under section 7 of the ACL in order to include both the actual manufacturer and entities who may be "deemed manufacturers" for the purposes of the Act, meaning in some cases there may be multiple "manufacturers". This is usually when the actual manufacturer is based overseas, however if a consumer were to initiate proceedings against the Australian entity that imported the product (the deemed manufacturer for the purposes of the Act), the overseas manufacturer can also be included as a party to the proceedings, therefore overseas manufacturers can still be held liable.
How long do I have to seek reimbursement from the manufacturer?
As the supplier, you have three years to seek reimbursement from the manufacturer, from either the day you fixed any problems with the consumer's product, or the day the consumer took legal action against you; whichever is earliest.
Where can I find further information?
The below links contain further information:
NSW Fair Trading - Consumer Guarantees
Sales Practices - A Guide for Businesses and Legal Practitioners
NSW Fair Trading - New disclosure obligations for NSW businesses
Consumer Guarantees - A Guide for Businesses and Legal Practitioners